OPEC+ News Rallies Market
June 1, 2021
The market has rallied up hard here this morning as the biggest news is that it appears that OPEC+, which is meeting virtually today, will increase output but not as much as the market expected. OPEC+’s thought is that more Iranian oil is coming back to the market. But that looks suspect this morning, and as a result of less production than expected and strong demand, prices have rallied. Many are still look for tighter supplies as demand goes up and supplies are constrained.
Baker Hughes reported that 3 crude oil rigs came online this week, up to a total of 359 rigs. In January of 2019, there were 327 more US oil rigs online than now.
On Friday, Oslo-based consultancy Rystad Energy said there would be a need for thousands of new oil wells and hundreds of new oilfields to meet global demand even if it falls sharply towards the middle of the century. Its analysis stands in sharp contrast to the conclusions of the International Energy Agency, which said last week that investors should not fund new oil, gas, and coal projects if the world wants to reach net-zero emissions by midcentury.
Total Chairman and CEO Patrick Pouyanne said that oil prices would likely reach new highs without new oil projects.
Goldman Sachs said it no longer sees China as the center of commodities pricing, noting that the pace of demand recovery in developed markets suggested Beijing as a buyer has been crowded out by Western consumers. While commodity prices fell after Chinese warnings over onshore speculations, the fundamental path in key commodities such as oil, copper, and soybeans remains oriented towards incremental tightness in the second half of 2021, with scant evidence of a supply response sufficient to derail this bull market. The market is beginning to reflect this, as copper prices are increasingly driven by Western manufacturing data rather than Chinese counterparts. Goldman said the immediate reason for greater U.S. pricing power is the large U.S. fiscal stimulus absent in China. Adding that China no longer benefits as much from its comparative advantage in lower-cost labor and global trade.